Recent news that Nasdaq’s board diversity proposal won SEC approval is certainly a step in the right direction. The proposal aims to require companies looking to list with the exchange to have at least one female board member, plus one from an underrepresented minority racial group or one who self identifies as a member of the LGBTQ community. Companies will have to disclose board diversity statistics within a year and those that don’t meet these standards will be required to justify their decision in writing to remain listed on Nasdaq.
Research has shown that the best boards are the most diverse boards. Are you wondering why? First, they can lead to better reputation and brand. Check! But even more importantly, diverse groups represent the real world – something that we should all care about. They can also offer depth of insight and perspective that non-diverse boards just can’t offer. Let’s be honest, innovation and the best ideas don’t come from following the status quo! Rather they are a product of disrupting that very status quo. Persons from diverse backgrounds and experiences will approach the same problem in different ways, hopefully resulting in better decisions.
It seems that the obvious benefits of diversity would lead many companies to embrace it. However, a review carried by Nasdaq last year found that more than 75% of its listed companies would have fallen short of the proposed requirement. This initiative should accelerate the momentum in the quest for equality. Other companies such as Blackrock and State Street have also pushed corporate boards to continue working towards diversity. Goldman Sachs indicated that they will no longer underwrite IPOs for companies in the US and Europe unless they had at least one “diverse” board member. Other companies have added chief diversity officers, set targets for representation of minority groups, and set pipeline programs with historically underrepresented colleges and universities. We applaud these efforts, but there is still work to be done.
We believe that greater boardroom diversity will not only lead to better stronger corporate governance, but also to better financial performance. Some critics of the proposed rule say its “racist and sexist in that it mandates firm establish quotas and discriminate bases on sex, skin color, ethnicity or sexual orientation”. To us, diversity in corporations is a matter of common sense and this effort could not come soon enough.